Avista deal largely defined by 2008 Puget Sound decision

Promises to keep Avista’s rates and charitable contributions steady were delivered quickly after this week’s announcement that it was being acquired by the Canadian utility Hydro One.

There’s reason to believe them. A decision by Washington state’s utility regulator set a precedent for utility mergers across the country in the past decade and established maintaining rates and community support when a merger is approved.

The 2008 decision by the state Utilities and Transportation Commission stipulated that mergers be “consistent with the public interest,” with a “no harm” standard. The decision not only made clear that directors and management of a local utility had to be located in the utility’s service area, but also that the “existing level of corporate contributions and community support” had to be maintained “for a period of five years after closing of the proposed transaction.”

Even after the five years are up, a utility would be hard-pressed to change its charitable practices, said Amanda Maxwell, the utility commission’s spokeswoman. A utility’s charitable contributions are linked to its low-income assistance programs, Maxwell said, and regulators notice when a utility isn’t doing enough to help those in need or giving back to the community.

“There’s oversight there,” Maxwell said. “Every time they want to adjust their rate levels, we’re looking at their contribution level.”

The commission’s regulatory power extends only within the state, but ramifications were felt across the country after its decision allowing Puget Holdings to acquire Puget Energy and Puget Sound Energy in 2008. The $7.4 billion merger was completed only after the utilities commission put 78 conditions on the deal.

Called the “net benefit standard,” the decision said the merger wouldn’t be allowed to proceed unless the companies could show a benefit to ratepayers from the sale, either through credits on their bills, investments in green energy or consumer protection provisions.

The provisions of the decision were made state law in 2009.

“It basically reads that the commission will hold companies looking to buy out a regulated utility to this standard,” Maxwell said of the law. “Ratepayers need to be receiving a benefit for the merger to go forward.”

Puget Sound Energy customers will receive a credit on their bills into 2019, amounting to about $100 million in credits over 10 years. The decision also required an additional $5 million be contributed to the Puget Sound Energy Foundation. Since the merger, the foundation has doled out millions of dollars to local nonprofits, with annual giving fluctuating from $500,000 to $1 million. In 2016, the foundation gave $1.1 million.

Mergers and acquisitions following the Puget Sound decision have hewed closely to the utility commission’s guidelines, including that for charitable giving. Acquisitions in upstate New York, New England, Mississippi, Washington, D.C., and Texas were approved with similar stipulations.

In Louisiana, the public utility Cleco Corp. was acquired in 2014 by Macquarie Infrastructure and Real Assets, British Columbia Investment Management Corp. and John Hancock Financial for $4.7 billion, including $1.3 billion in assumed debt. The Louisiana utility has about 1,200 employees and serves about 280,000 customers, similar to Avista.

Following Washington’s precedent, the Louisiana Public Service Commission only allowed the deal to proceed under 77 conditions, including $136 million in rate credits, environmental protections and the establishment of a $7 million economic development fund to attract and create jobs in the utility’s service area. The company doubled its amount of charitable giving from $3 million to $6 million over 10 years.

“The philanthropic giving was baked into the deal,” said Logan Burke, executive director of the Louisiana-based Alliance for Affordable Energy, a consumer advocacy group. “We had a lot of concerns. As a result of our pushing back so hard on it for so long, there was actually an influx of philanthropic giving for almost a year. I’ll put it to you this way: In order for the utility to get what they wanted – to be acquired and get the communities on board – they just started handing money out. But it wasn’t a long-term benefit.”

Burke said the Louisiana merger is too recent to understand its long-term effects, but she’s watching closely. Each ratepayer received a nearly $500 credit on their bill and a reduction in rates, but the current rate plan expires next June. She worries the benefits the community has seen will be short-term.

A 2015 article in the American Bar Association’s Infrastructure publication examining the recent wave of utility mergers concluded that “since the Puget Holdings decision, state utility commissions and affected stakeholders, such as environmental and consumer activists, have become more aggressive in using merger proceedings as a vehicle to pursue rate relief and other benefits for rate payers and other groups.”

Maxwell, with the utilities commission, said benefits to the public interest are not just a requirement under law, but “good corporate stewardship.” She added that Washington state’s decision set a precedent because it came at the beginning of a slew of mergers and acquisitions.

“Among the community, it was well-talked about,” she said of the 2008 decision. “Utility regulators are a communal bunch.”